I’d guess that one of the most popular current political ideas among people who think outside the box is the idea of a Basic Income Guarantee. This is, roughly, the idea that everyone should receive a regular lump sum payment unconditionally. There are all sorts of variations, but that’s the general idea: the state pays each person, rich or poor, employed or unemployed, the same amount of money each week, month, or year. What ‘each person’ means here obviously depends on the scale at which the plan is implemented, among other things.
The proposal has its own entry in the Stanford Encyclopedia of Philosophy (or something close to it), there are thousands of organisations devoted entirely to promoting it all over the world (BIEN, UBIE), and here in the UK it’s part of the Green Party manifesto.
Listen to this podcast and you’ll be either amazed or amused at what a Basic Income is supposed to achieve. No more homelessness. Everyone’s basic needs met without them having to work. People free and happy, working for the common good in whatever ways they see fit. Or here’s Philippe Van Parijs claiming that paying €200 to each EU citizen, funded out of a pan-European VAT, can stabilise the Euro.
I’m sceptical about the idea, and I worry that it gets in the way of ideas with a lot more promise, especially the idea of a Job Guarantee. Neil Wilson suggests that the Basic Income people (BIPs) are politically helpful, since their idea makes better ideas look comparatively reasonable. The problem is, however, that BIPs are the same people who would be supporting better ideas if they weren’t distracted by their silver bullet.
So here’s what I think is wrong with the Basic Income idea (Pavlina Tcherneva absolutely nails it – if you’re a BIP please read her paper):
Every sovereign currency issuer needs a price anchor. Otherwise there’s nothing to stop prices rising indefinitely. There isn’t ever perfect competition, and unions and big firms especially are always yanking wages and profits upwards. Also banks have a tendency to overlend and governments have a tendency to overspend. There’s a lot of inflationary pressure built into the system. A price anchor is needed to hold it down.
Once we used gold as a price anchor. The government would build up a buffer stock of gold and promise to sell it at a fixed price. When the prices of other things rose (i.e., the purchasing power of the currency fell), people would buy up the gold. So there’d be less currency left over to chase other goods, and the rise in prices would be checked.
Gold isn’t a very good price anchor. For one thing, it requires lots of labour to dig gold out of the ground and then put it into a vault. Some would say there are better uses of labour.
Anyway, gold has a certain dignity, and it’s not very nice to treat it like that – using it as a mere means instead of respecting it as an end in itself. Much better to use the working class. That’s what we do now. The state (government + central bank) works to maintain a certain rate of unemployment (the NAIRU), using austerity and tight money to prevent the economy from running at full capacity. Thus there is a buffer stock of people looking for work. The state also ensures that their condition is unpleasant, so that many of them would accept even low-paid work to get out of it. When there’s upward pressure on prices, employers can hire out of the buffer stock. The low wages of the workers thus hired hold down prices.
That’s also not a very good price anchor. In practice, employers often don’t want to hire workers out of the unemployed buffer stock, even for a low wage. People who have been unemployed for a long time might not be reliable workers, and employers don’t always want to take the risk.
Also, again, some would say that there are better things for people to do than wait in queues at job centres and be forced to apply for seven jobs a day that don’t exist. A job guarantee would offer them the option of instead doing public works for a living wage. This would anchor prices to the living wage, where they should be, and supply public works. If capital is limited there is still plenty of vital but non-capital-intensive public work to be done: care and companionship for the elderly, maintenance of public parks and recreational facilities, curatorship of public museums and libraries, maintenance work in hospitals and schools, etc. Presumably some people would prefer doing things like this to being smothered daily within a humiliating bureaucracy. The price anchor would then partially consist of people working in the public sector, rather than being entirely a reserve army of the unemployed (part-voluntary part-involuntary).
What do BIPs propose to use as a price anchor? They can’t use unemployment. That requires unemployment to be sufficiently unpleasant that people will always be ready to accept a low wage. Yet one of the main points of Basic Income is to make unemployment more bearable, strengthening the wage-bargaining power of workers in the process (see 1 and 2 on this list). There’s nothing, then, to stop workers negotiating higher wages, firms raising prices in response to maintain profits, and the same happening again – the famous ‘wage-price spiral’. As this goes on, the purchasing power of the Basic Income shrinks to zero. Should the issuers raise the amount? If they don’t, its value gradually erodes and the whole point of the scheme is lost. If they do, there’s no control on inflation.
So, again I ask, what do BIPs plan to use as a price anchor? Tcherneva and Randall Wray call this the Achilles heel of Basic Income. BIPs don’t, to my knowledge, propose using gold, foreign currency reserves, oil, or anything else as an alternative price anchor. They just haven’t thought about it. If they did, I can’t see what better answer they could give than the job guarantee. The job guarantee is the only thing that could make their proposal socially viable in the long term. [EDIT: Mike Otsuka has pointed out to me that many Basic People are Georgists, who could in principle use a combination of Land Value Tax and guaranteed land purchases by the state at a fixed price as a price anchor. So I retract the claims in this paragraph, though I’m not sure such a scheme would achieve the objectives ascribed to it.]
BIPs need the Job Guarantee as much as anybody else. I wish they would support it, even though this would mean less time to play with their favourite toy idea.